Malaysian crude palm oil futures hit 33-month highs on Monday as hopes of strong China demand and erratic weather helped shrug off Beijing's surprise interest rate hike. China soyaoil recovered some losses, after dropping earlier in the day, on expectations that the government would restock food staples next year and prospects of stronger demand ahead of the Lunar New Year.
Traders said the main driver for palm oil futures include heavy rains hurting yields and disrupting harvesting in Malaysia and Indonesia as well as a dry spell potentially cutting into South American soyabean production. "We are still in a weather market. Exports are down for palm oil and China's interest rate hike may limit the gains but no one can deny that China's economy and demand will expand next year," said a trader with a foreign brokerage in Malaysia.
"In fact, monetary tightening indicates a strong economy and demand cannot just die overnight if there is a hike." Benchmark March 2011 palm oil on the Bursa Malaysia Derivatives Exchange rose as much as 2.8 percent to 3,767 ringgit ($1,217) per tonne, the highest since March 14, 2008 and confirming an earlier Reuters technical analysis.
The contract settled at 3,756 ringgit. Traded volume almost doubled at 18,543 lots of 25 tonnes each. Palm oil will rise to 3,766 ringgit per tonne as an upward wave "3" is advancing, Reuters technical analysis showed.
Malaysian palm oil exports for December 1-25 fell 23.9 percent from the same period a month ago, said cargo surveyor Intertek Testing Service, on slower imports from India and China. But some traders expect China to buy aggressively next year ahead of Lunar New year in early February. Another cargo surveyor Societe Generale de Surveillance reported a 23.7 percent drop for palm oil exports over the same period.
The most active September 2011 soyaoil contract on Dalian Commodity Exchange rose as much as 0.7 percent after falling earlier in the day. "Traders have factored in the interest rate hike earlier, so today's market was not impacted by the news," said Zhang Juan Cong, an oil analyst with Dadi Futures in China's southern city of Hangzhou.
"China's government might control prices with law or legislation, but prices were mainly dominated by weak supplies of palm oil and soyabean in the short term." On Christmas Day, China raised interest rates by 25 basis points, the second hike in just over two months, as it stepped up efforts to tame inflation that hit a 28-month high of 5.1 percent in November.
On Monday, Beijing made fresh assurances that it will improve efforts to stabilise prices and ensure an abundant supply of essential commodities ahead of the Chinese New Year in early February. US soyaoil for January delivery rose 0.6 percent in Asian trade, reversing losses earlier in the day as traders focused on dry weather cutting supplies in Argentina, the world's largest soyaoil exporter. The drier weather in the South America country may delay soyabean sowing in some areas and put recently seeded crops at risk, prompting analysts to cut their production estimates.